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2019

Applicability of GST on Charitable Institutions

GST on Charitable Institutions

Activities carried out by Charitable Institutions are mostly not-for-profit in nature. However, certain transactions undertaken by charitable institutions may fall under the definition of supply as defined by GST Act. Hence, it creates lot of confusion whether charitable institutions are covered under GST and whether they have to register under GST or not. It is important to scrutinize the transactions of charitable institutions to determine whether there is any applicability of GST.

Scope of Supply and Charitable Activities:

As per section 2(92) read with section 3 Supply includes:

  • All forms of supply of goods and/or services such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.
  • Importation of services, for a consideration whether or not in the course or furtherance of business.
  • A supply specified in Schedule I, made or agreed to be made without a consideration.
  • Permanent transfer/ disposal of business assets (only when input tax credit is availed).
  • Supply of goods or services between related persons, or between distinct persons as specified in Section 10, when made in the course or furtherance of business. Distinct persons include branch offices.
  • Transactions between principal and agent in the context of supply of goods.
  • Importation of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business.

 

Hence, any activities carried out by charitable institutions which satisfy the definition of supply are subject to GST. However, it is noteworthy that charitable institutions are exempt from GST through notification.

 

Notification Granting Exemption to Charitable Institutions:

  • Notification No. 12/2017- Central Tax (Rate) dated 28th June 2017 exempts services provided by entity registered under section 12AA of the Income Tax Act, 1961 by way of charitable activities.
  • Therefore, services provided in the nature of Charitable Activities are completely exempt.
  • However, the following conditions must be satisfied:

1. Services or activities by the entity are by way of Charitable Activities.
2. Entities must be registered under 12AA of the Income Tax Act, 1961.

Let us discuss above conditions in details.

Scope of Charitable Activities:
As per Notification 12/2017, charitable activities means activities relating to:

i. Public health by way of:

(A) care or counseling of

a) Terminally ill persons or persons with severe physical or mental disability;
b) Persons afflicted with HIV or AIDS;
c) Persons addicted to a dependence-forming substance such as narcotics drugs or alcohol; or

(B) public awareness of preventive health, family planning or prevention of HIV infection;

ii. Advancement of Religion, Spirituality or Yoga;

iii. Advancement of educational programmes or skill development relating to-

a) abandoned, orphaned or homeless children;
b) physically or mentally abused and traumatized persons;
c) prisoners; or
d) persons over the age of 65 years residing in a rural area;

iv. Preservation of environment including watershed, forests and wildlife;

Charitable Institutions carrying out Commercial Activities:

  • Charitable institutions having commercial activities are not exempt from GST.
  • Commercial activities may include renting of premises or equipment to an outsider and such other activities which does not fall under “Charitable activities” as per objectives of the organization.
  • However, there is exemption to entities registered under 12AA as per Entry 13 of Notification 12/2017 for below activities:

a) Conduct of any religious ceremony
b) Renting of precincts (boundaries) of a religious place meant for general public, owned or managed by an entity registered as a charitable or religious trust under section 12AA of the Income-tax Act, 1961 (hereinafter referred to as the Income-tax Act) or a trust or an institution registered under sub clause (v) of clause (23C) of section 10 of the Income-tax Act or a body or an authority covered under clause (23BBA) of section 10 of the said Income-tax Act:

Provided that nothing contained in entry (b) of this exemption shall apply to:

Renting of rooms where charges are one thousand rupees or more per day;
Renting of premises, community halls, kalyanmandapam or open area, and the like where charges are ten thousand rupees or more per day;
Renting of shops or other spaces for business or commerce where charges are ten thousand rupees or more per month.

Conclusion:

It is clear from the above discussion that all activities of a charitable institution are not exempt from GST. There are certain exemptions provided by way of notifications. However, scope of these exemptions is limited to certain specified activities only. Other than the above exemption, any commercial activity conducted by a Charitable Institution attracts GST and the organization has to register itself under GST Act and comply with the GST Law.

 

Read More:

GST Rates applicable to Accommodation Services and Restaurants

 

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